Stocks Slightly Higher into Final Hour on Earnings Optimism, US Economic Data, Short-Covering, Retail/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.75 -1.50%

• Euro/Yen Carry Return Index 154.60 -.02%

• Emerging Markets Currency Volatility(VXY) 8.11 +1.0%

• S&P 500 Implied Correlation 34.26 -9.30%

• ISE Sentiment Index 109.0 +19.78%

• Total Put/Call .92 -1.08%

• NYSE Arms .97 +5.70% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.35 -.43%

• European Financial Sector CDS Index 67.47 -.17%

• Western Europe Sovereign Debt CDS Index 31.53 -2.0%
• Asia Pacific Sovereign Debt CDS Index 66.27 +2.65%

• Emerging Market CDS Index 276.63 -.54%

• China Blended Corporate Spread Index 324.06 -.44%
• 2-Year Swap Spread 21.75 +.5 basis point

• TED Spread 23.25 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -10.0 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% -1.0 basis point

• Yield Curve 183.0 unch.

• China Import Iron Ore Spot $70.97/Metric Tonne +1.10%

• Citi US Economic Surprise Index 21.40 +10.8 points
• Citi Eurozone Economic Surprise Index -37.0 -22.0 points

• Citi Emerging Markets Economic Surprise Index -1.0 +.1 point

• 10-Year TIPS Spread 1.86 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -50 open in Japan

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Higher: On gains in my retail/tech sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• UN Links Russian Fighters to Rights Violations in Ukraine. The United Nations cited a “total breakdown of law and order” in eastern Ukraine and linked Russian fighters to human-rights violations as it raised its estimation of the death toll there to more than 4,300. NATO Secretary General Jens Stoltenberg urged Russia to pull back its troops from inside eastern Ukraine and from the border area, while Russia’s State Security Council in Russia said the U.S. was instigating the fighting. “The continuing presence of a large amount of sophisticated weaponry, as well as foreign fighters that include servicemen from the Russian Federation, directly affects the human rights situation in the east of Ukraine,” the UN High Commissioner for Human Rights said in a report. “Serious human-rights violations persist in eastern Ukraine despite tenuous cease-fire.”
• Russia’s War Games Spill Secrets, Stiffen NATO Resolve. Russian jets probing NATO airspace and supersized war drills are spilling Kremlin military secrets and scaring European nations into stiffening their armed forces. The alliance said by late October it intercepted more than 100 Russian planes this year, more than three times the number in 2013. A report by the European Leadership Network, a London security research group, termed the incidents “a highly disturbing picture of violations of national airspace, emergency scrambles” and “narrowly avoided mid-air collisions.”
• Euro-Area Growth at Risk as Factories, Services Weaken: Economy. The euro-area economy risks a renewed slowdown. A Purchasing Managers Index for factories and services activity unexpectedly fell to 51.4 in November, the lowest in 16 months, from 52.1 in October, London-based Markit Economics said today. A reading above 50 indicates expansion. A German measure also declined, and a separate report showed weakness in China, where a factory gauge dropped to a six-month low.
• French Factories Slump Deepens as Economic Weakness Persists. French manufacturing shrank more than analysts forecast in November and demand fell, signaling that an economic rebound seen in the third quarter might be short lived. A Purchasing Managers Index fell to 47.6, the lowest in three months, from 48.5 in October, London-based Markit Economics said today. That’s below the 50-point mark that divides expansion from contraction and compares with the median forecast of 48.8 in a Bloomberg News survey. A separate index showed services also contracted, while new business across both industries fell the most in 17 months. 
• German Growth Outlook Dims as Manufacturing, Services Weaken. German manufacturing and services expanded at the slowest pace in 16 months in November, signaling that growth in Europe’s largest economy will remain sluggish. A Purchasing Managers Index for both industries unexpectedly declined to 52.1 from 53.9 in October, London-based Markit Economics said today. While the gauge has been above the 50-point mark that divides expansion from contraction since early last year, the reading was below the median forecast of economists for an increase to 54.
• European Stocks Drop as Manufacturing Slows. European stocks declined as miners fell after manufacturing data missed economists’ estimates for the region and China. The Stoxx Europe 600 Index dropped 0.3 percent to 338.28 at the close of trading. A gauge of mining stocks fell to its lowest level this year, with iron-ore producers BHP Billiton Ltd. and Rio Tinto Group losing more than 2.5 percent. National equity indexes of Spain and Italy dropped the most among 18 western-European markets. 
• Copper Falls for Third Time in Four Days on China Data. Copper futures for March delivery declined 0.7 percent to settle at $3.0115 a pound at 1:11 p.m. on the Comex in New York. This year, the price fell 11 percent. 
• Brent Gains First Time in 4 Days as Investors Weigh OPEC. Brent for January settlement gained 79 cents, or 1 percent, to $78.89 a barrel at 11:55 p.m. New York time on the London-based ICE Futures Europe exchange. Total volume of all futures was 14 percent below the 100-day average. Front-month prices have decreased 29 percent this year.
• Default Forecasts Could Be Low as Fed Tries to Bust Loan Bubble. What’s worse for the U.S. economy: More bankruptcies in the near term or an overheated market that portends another credit crisis in the longer run? That’s a conundrum facing Federal Reserve officials, who’ve been trying to get banks to tighten their underwriting standards for speculative-grade loans as the market shows signs of froth. So far, the increased oversight hasn’t prevented companies including Caesars Entertainment Corp. and Charter Communications Inc. (CHTR) from raising money at a record pace through new high-yield, high-risk loans this year, according to data compiled by Bloomberg. Almost one third of the loans in the past year had features cited as weak by federal examiners in an annual review. Now comes the question of whether the most-indebted companies will be allowed to eventually refinance with similarly loose terms or whether they’ll be forced to abide by restrictions that make it difficult, or even impossible, to comply with their loan terms.
• Obamacare’s Subscriber Rolls Include Unpublicized Dental Plans. The Obama administration included as many as 400,000 dental plans in a number it reported for enrollments under the Affordable Care Act, an unpublicized detail that helped surpass a goal for 7 million sign-ups. 
• Foreign Governments Have Hacked U.S. Power System, NSA Head Says. Several foreign governments have hacked into U.S. energy, water and fuel distribution systems and might damage essential services, the top national security official said. Those intrusions could leave the U.S. vulnerable to a cyber-attack that may cause significant loss of life or physical damage, National Security Agency Director Admiral Michael Rogers told the House intelligence committee at a hearing in Washington today. Rogers said such an attack will occur during his tenure. “This is not theoretical,” Rogers said. “This will be truly destructive if someone decides this is what they want to do.”

ZeroHedge:

• Initial Jobless Claims Hit 2-Month Highs, Continuing Claims Tumble To 14-Year Lows. (graph)
• Plunging Energy Prices Drag Down CPI, Offseting Jumping Food Costs. (graph)
• US Manufacturing PMI Misses By Most On Record, Lowest Since January. (graph)
• Philly Fed Explodes To 21 Year Highs, Beats By 10 Standard Deviations. (graph)
• European Consumer Confidence Tumbles To 9 Month Lows. (graph)
• Multiple Expansion Is Over, Goldman Warns, "US Stocks Will Close 2015 Only 5% Higher". (graph)

Reuters:

• U.S. states get more, spend more on Medicaid under Obamacare: report. One part of the Affordable Care Act is going according to plan, with U.S. states receiving and spending more money on the Medicaid health insurance program, a report released by the National Association of State Budget Officers on Thursday showed. States run Medicaid, which serves families who have low incomes, and receive partial reimbursements from the federal government. The healthcare overhaul known as Obamacare allowed more people to enroll in Medicaid and also gave states 90 percent to 100 percent reimbursements for new enrollees. "The large increase in federal funds to states in fiscal 2014 was almost solely due to additional Medicaid dollars, mainly resulting from the expansion of Medicaid in a majority of states under the Affordable Care Act," the association found.
• NATO scrambles jets 400 times in 2014 as Russian air activity jumps. NATO warplanes have had to scramble 400 times this year in response to an increase in Russian air activity around Europe not seen since the Cold War, the alliance's chief said on Thursday.
• Exclusive: U.S. increasing non-lethal military aid to Ukraine. The United States plans to increase non-lethal military assistance to Ukraine, including deliveries of the first Humvee vehicles, having decided for now not to provide weapons, U.S. officials said.

Bear Radar

Style Underperformer:

• Large-Cap Value -.03%

Sector Underperformers:

• 1) Computer Services -.70% 2) Drugs -.76% 3) I-Banks -.43%

Stocks Falling on Unusual Volume:

• WD, GMCR, AGTC, JMEI, LQDT, CPA, DCI, ATHM, LDRH, SPB, PEO, CRM, OME, BTI, SNY, CSTM, GPRO, LXFT, JKS, TGT, ACT, DISH, NML, MBLY and GIB

Stocks With Unusual Put Option Activity:

• 1) HUN 2) CHRW 3) CRM 4) XHB 5) KLAC

Stocks With Most Negative News Mentions:

• 1) ETR 2) GM 3) GMCR 4) CECO 5) HGR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.73%

Sector Outperformers:

• 1) Homebuilders +2.09% 2) Retail +1.46% 3) Coal +1.45%
  

Stocks Rising on Unusual Volume:

• BBY, CYBX, WSM, DLTR, ATVI, CLDX, URBN, CZR, RH, BBG and WLH

Stocks With Unusual Call Option Activity:

• 1) DLTR 2) DG 3) TMUS 4) MRO 5) BBY
  

Stocks With Most Positive News Mentions:

• 1) BBY  2) DLTR 3) JACK 4) CF 5) THOR
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• Germany Calls for Ukraine Peace Efforts as Tensions Mount. German Foreign Minister Frank-Walter Steinmeier said mounting tensions in eastern Ukraine raised the risk of a “major military confrontation.” Speaking after a day of shuttle diplomacy that took him to Moscow and Kiev, Steinmeier said yesterday he used his meeting with Russian President Vladimir Putin “for an exchange of views, which seriously differ” on Ukraine. 

• Medicine and Meat Out of Reach Amid Ukrainian Price Shock. From Lviv, near the Polish border, to Kharkiv, 1,000 kilometers (650 miles) east in Russia’s shadow, Ukrainians are grappling with the world’s worst-performing currency, inflation that’s rocketed to 20 percent and the worst recession in five years. The plight of Zhytomyr’s 270,000 residents shows how bailout-mandated austerity and the strains of an eight-month insurgency are playing out in everyday life.

• Distressed Debt in China? You Ain’t Seen Nothing Yet, Buyers Say. Bad debts in China are well underestimated because authorities persist in propping up weak companies and bailing out local investors, according to DAC Management LLC. The Chicago-based asset management and advisory firm, which focuses on distressed credit and special situations in China, says the worst is yet to come, and that means lots of opportunities for the world’s biggest distressed debt traders.

• China Wages Policy Backfires as Costs Prompt Sock-City Blues. Wages at Chen Fengying’s sock factory on China’s east coast have soared almost sixfold in seven years. The 20 percent increase she expects in 2015 may doom her seven-year-old company as profit and revenue fall. “If things go on like this, we’ll just close down,” said Chen from Zhuji in Zhejiang province, the so-called Sock City that produces 17 billion pairs annually, more than 35 percent of global production. “Many factories have already died.”

• Asian Stocks Retreat on Fed Minutes; Japan Shares Climb on Yen. Asian stocks fell a second day after Federal Reserve minutes showed some U.S. policy makers were concerned about low inflation. Shares in Japan gained as the yen weakened past 118 per dollar. The MSCI Asia Pacific Index (MXAP) lost 0.1 percent to 139.54 as of 9:04 a.m. in Tokyo after dropping 0.7 percent yesterday.

• Codelco Seen Trimming 2015 China Copper Premium Amid Surplus. Codelco, the world’s biggest copper producer, will reduce the fee it charges Chinese buyers by 4 percent next year amid waning demand and rising supplies, according to an executive at the country’s largest non-state trader of the metal. The charge for long-term supplies from the Chilean miner added to prices for immediate delivery on the London Metal Exchange will fall to $133 a metric ton from this year’s $138, Luo Shengzhang, vice president of Maike Metals Group, said yesterday at a conference in Shanghai. The spot premium for shipments to Shanghai, including insurance and freight, is now $60 a ton, compared with $135 in May and a record $210 in August 2013, according to data from SMM Information & Technology Co.

• Goldman(GS), Morgan Stanley(MS) Commodities Heyday Gone as Units Faulted. Congressional scrutiny of Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS)’s commodities businesses is another strain for units that already saw revenue drop by two-thirds from peak years.

Wall Street Journal: 

• Obama Sets Immigration Rollout for This Week. Moves, to Be Announced in Thursday Night Speech, Expected to Protect Millions From Deportation. President Barack Obama will lay out sweeping changes to the immigration system in a speech Thursday night, offering new protections to millions of people in the country illegally and sparking a bitter fight with Republicans.

• As Yen Slides, Investors Shun Other Asian Currencies. Regional Officials Fear Weaker Japanese Currency Could Hurt Competitiveness of Their Economies. Investors are shedding holdings of Korean won, Singapore dollars and other Asian currencies, in a bet the yen’s fall against the dollar will reverberate through the region’s foreign-exchange markets.

• Obama: The Hangover. The Gruber technocracy is a green sludge consuming the Democratic Party. Who can forget the Obama acceptance speech in 2008 on a football field in Denver, the nominee standing amid Greek columns and scrolling through a long list of goals to 84,000 Democrats? That was the high. Six years later, the Democrats get the hangover.

MarketWatch.com:

• Strains in Japan could put focus on debt. Naysayers have long worried the whole “Abenomics” experiment would end in tatters. And now Abe’s decision to delay the hike and call a snap election following the Japanese economy’s fall back into recession in the third quarter, has some observers worried of a possible strain between Kuroda and Abe.

CNBC: 

• None of the three networks plan to air Obama speech. President Barack Obama plans a major speech on immigration reform Thursday night, and none of the three major networks plan to cover it.

• Goldman(GS) accused of exploiting aluminum storage rules. (video) In a voluminous new report reflecting two years of research, an influential Senate panel accuses Goldman Sachs of manipulating aluminum storage rules in order to line its own pockets, even as manufacturers and customers suffered.

Zero Hedge:

• Santelli Goes Ballistic: "I Feel Like I'm Living In A Cartoon". (video)

• Japanese Trade Deficit Streak Hits Record 44 Months, Yen & Stocks Decoupling. (graph)

• 21 Facts That Prove That Government Dependence Is Out Of Control In America.

• Why Japan’s Money Printing Madness Matters. (graph)

• Why Japan Needs A 'Strong' Yen. (graph)

• Fed Warning Sends Small Caps Red For 2014. (graph)

• Is This The Chart That The World Should Be Watching Closest? (graph)

• The Eurozone's QE Problem.

• China Manufacturing PMI Misses, Slides To 6 Month Lows. (graph)

Business Insider:

• Firefox Dumps Google For Yahoo(YHOO).

• Russia Is Moving Combat Aircraft To The Ukrainian Border.

NY Times: 

• Arizona Sues G.M. for $3 Billion Over Recalls. The attorney general of Arizona said on Wednesday that the state had filed suit against General Motors, claiming that the automaker had defrauded the state’s consumers of an estimated $3 billion.

Reuters: 

• Salesforce(CRM) 2016 revenue forecast misses market estimates. Cloud software company Salesforce.com Inc forecast revenue for the current quarter and full year 2016 that fell short of market expectations, hurt by a strong dollar. Shares of Salesforce, which gets about 30 percent of its revenue from outside Americas, were down 4.5 percent in extended trading on Wednesday. The world's biggest maker of online sales software said it expected revenue of $6.45 billion to $6.5 billion for the year ending January 2016, missing analysts' average estimate of $6.66 billion.

• More U.S. borrowers fall behind on their car loans in 3rd qtr. The amount of U.S. borrowers that were at least two months behind on their car loan payments jumped sharply in the third quarter, according to a report on Wednesday from Experian Automotive. The 60-day delinquency rate for U.S. auto loans rose nearly 9 percent to 0.62 percent in the third quarter from the same period in 2013.

Financial Times:

• China and Russia in naval co-operation vow. China and Russia have vowed to strengthen bilateral military co-operation and hold joint naval exercises to counter US influence in the Asia-Pacific region as a growing chorus of voices warns of a looming “new cold war”.

Shanghai Securities News:

• China Should Cut 'Excessive' Expansion of Investment. China should reduce "excessive" expansion of investments and improve their efficiency to ensure sustainable economic growth, according to an article written by Xu Ce and Wang Yuan from the National Development and Reform Commission. China should reform performance assessment of local govts and reduce shadow banking, the article said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.50 unch.

• Asia Pacific Sovereign CDS Index 64.5 +1.0 basis point.

• FTSE-100 futures -.16%.

• S&P 500 futures -.20%.

• NASDAQ 100 futures  -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DLTR)/.64

• (PDCO)/.51

• (PLCE)/1.80

• (BBY)/.25

• (ROST)/.87

• (GPS)/.73

• (ZOES)/.03

• (ADSK)/.22

• (GME)/.61

• (INTU)/-.20

• (TFM)/.28

• (SPLK)/.00 

Economic Releases
8:30 am EST

• The CPI for October is estimated to fall -.1% versus a +.1% gain in September.

• The CPI Ex Food & Energy for October is estimated to rise +.1% versus a +.1% gain in September.

• Initial jobless Claims are estimated to fall to 284K versus 290K the prior week.

• Continuing Claims are estimated to fall to 2370K versus 2392K prior.

9:45 am EST

• Preliminary Markit US Manufacturing PMI for November is estimated to rise to 56.3 versus 55.9 in October.

10:00 am EST

• Philly Fed for November is estimated to fall to 18.5 versus 20.7 in October.

• Existing Home Sales for October are estimated to fall to 5.15M versus 5.17M in September.

• The Leading Index for October is estimated to rise +.6% versus a +.8% gain in September.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Tarullo speaking, weekly EIA natural gas inventory report, Bloomberg Economic Expectations Index for November, weekly Bloomberg Consumer Comfort Index, Canaccord Medical Tech/Diagnostics Forum, Goldman Emerging/SMID-Cap Growth Conference and the (INTC) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.